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                                        What Determines The Value Of Cryptocurrencies?

What Determines The Value Of Cryptocurrencies?

24 Dec 2021
Reading Time: 7 minutes

Cryptocurrencies have been a hot topic for a while now. But what really determines the value of cryptocurrencies?

The outside factor which also determines the value of crypto is if the market or industry starts to invest their technology in one specific coin. For example, some coins gain so much more value when the sports betting industry starts to accept them in their system. Some examples of these coins are Bitcoin currencyEthereum currency, and XRP currency.

These crypto coins have a higher demand in the sports betting industry because they can be used to bet on almost any sport or event from around the world- from esports and horse racing to cricket and football. The crypto coins add a level of convenience, speed, security, and transparency which attracts investors looking for the next big thing. In addition, blockchain sports betting is becoming the norm in the online gaming world.

So, what determines the value of cryptocurrencies from inside their community? Some factors to take into consideration are utility, demand, supply, production/development cost and crypto exchanges. These are the things that determine how much one crypto coin is worth compared to another.

The Utility

The first factor that determines the value of a certain coin is its utility. Most coins work on blockchain technology and have their own unique purpose which they focus on. Some examples are Bitcoin, Litecoin, Ethereum, and Monero which all work to provide transaction services for their users. A lot of people invest in these cryptocurrencies because they believe that their utility will go up and that people who want to use this service will continue to use it.

Demand

The second factor that determines the value of cryptocurrencies is demand. This is a pretty easy concept to understand. Simply put, if more people want something then it will be harder for them all to get what they want which will result in a higher price. This is why many popular cryptocurrencies such as Bitcoin have been seeing a lot of growth recently. Their transaction costs have decreased and their transaction speeds have increased over the past few years which have made more people want to use Bitcoin for their transactions because it is cheaper and faster than conventional wire transfer. In fact, according to experts Bitcoin’s price prediction is to even go further in the long run. 

Supply

The last factor that determines the value of crypto is supply. This can get pretty complicated and some people don't understand this concept very well which leads to them buying crypto coins at high prices and seeing their investment go down even further because more coins were just released onto the market in a short amount of time. An example would be with a coin that was just recently released onto the crypto market. Let's say that this coin had a very low supply when it first came out and there were only 5,000 coins and 1 person bought all of them and then held onto them for months until more people started seeing its value and wanted to invest so they could get the profits. Due to the major increase in demand, the price of the coin would go up which could make another investor think that this is an opportunity to buy more coins because the value will continue to go up. But let's say that at this time, 10 million additional coins were released onto the market and now the supply is much higher than it was before but because of all of these new people who wanted to buy the coin, the prices would stay at the same point. This is why it is very important to understand the flow of distribution as well as how crypto regulation is changing from time to time. It is also important for investors to understand crypto-coins and their blockchains because if you are not aware of what happens when more coins are added into the system then you will be buying crypto-coins at a much higher price than they should actually be at.

Production/Development Cost

Production/Development Cost

Using a computer to validate the next block on the blockchain is known as cryptocurrency mining. Cryptocurrency's ability to function is due to the decentralized network of miners. In exchange, the protocol generates a reward in the form of cryptocurrency tokens, plus any fees or amount paid to the miners by the trading parties. When mining crypto coins, there are, in fact, production costs. The direct costs of a coin, as well as the costs of materials required in its mining, define its worth or price. The higher the production expenses, the more valuable the currency.

Crypto Exchanges

Bitcoin and Ether, two popular cryptocurrencies, are traded on a variety of platforms. The most popular and demanding tokens are listed on almost every crypto exchange.

Some smaller tokens, on the other hand, may only be accessible on a few exchanges, limiting access to some investors. Some wallet providers will gather quotes from many exchanges for any set of cryptocurrencies, but they will charge a fee for doing so, raising the cost of investing. In addition, if a cryptocurrency is thinly traded on a tiny exchange, the spread taken by the exchange may be too wide for some investors.

More cryptocurrency exchanges listing it can increase the number of investors willing and able to buy it, hence raising demand. And, assuming all other factors remain constant, as demand climbs, so does the price.

Conclusion

Cryptocurrencies are a new and exciting investment opportunity for people looking to make money in the digital world. The value of cryptocurrencies is determined by three factors: utility, demand, and supply. Investing in these coins involves careful consideration of their purpose and how they will be used moving forward. By understanding the factors which affect a coin's value, an investor can make smart decisions and potentially see a higher return on their investment.

 

Cyril Sansano

Reviewed by Cyril Sansano

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